Illicit financial flows and human rights

During its 25th Session, the Human Rights Council adopted resolution 25/9 in which it requested the Independent Expert on the effects of foreign debt to undertake a further study to analyse the negative impact of illicit financial flows on the enjoyment of human rights in the context of the post 2015 development agenda.

An interim study on this topic will be submitted by the Independent Expert to the Human Rights Council in March 2015, followed by a final report in March 2016.

As stressed in the resolution, “corruption is a serious barrier to effective resource mobilization and allocation and diverts resources away from activities that are vital for poverty eradication, the fight against hunger, and economic and sustainable development.”

The resolution also recalls that “the enjoyment of human rights, be they economic, social and cultural, or civil and political, in particular the right to development, is seriously undermined by the phenomenon of corruption and the transfer of funds of illicit origin, which may endanger the stability and security of societies, undermine the values of democracy and morality and jeopardize social, economic and political development, especially when an inadequate national and international response leads to impunity.”

In March 2015 the Independent Expert presented an interim report (A/HRC/28/60) to the 28th session of the Human Rights Council. The report stressed that illicit financial flows generated from crime, corruption, embezzlement and tax evasion represent a major drain on the resources of developing countries, reducing tax revenues and the scope for progressive taxation, hindering development and the rule of law, exacerbating poverty and inequality, and undermining the enjoyment of human rights. Tax evasion and abuse are considered to be responsible for the majority of all illicit financial outflows, followed by illicit financial flows relating to criminal activities, such as drug and human trafficking, the illicit arms trade, terrorism and corruption-based illicit financial flows. According to some estimations developing countries lost US$ 991 billion in illicit financial outflows in 2012 and those flows increased in real terms at a rate of 9.4 per cent per annum over the period 2003–2012. The annual loss is substantially more than the estimated yearly costs of achieving the Millennium Development Goals. The report emphasizes the need for due diligence and due process in the fight against illicit financial flows, for better protection of witnesses and whistle-blowers and for incorporating human rights considerations in the management of returned stolen assets. It concludes with recommendations on how the goal of curbing illicit financial flows could be operationalized within the post-2015 development agenda of the United Nations.

Illicit financial flows and the post-2015 development agenda of the United Nations

The report of the United Nations High-Level Panel of Eminent Persons on the Post-2015 Development Agenda, published in May 2013, recommended that a global target to “reduce illicit flows and tax evasion and increase stolen asset recovery” should be included in the future United Nations development framework. The report stated that “It is time for the international community to use new ways of working, to go beyond an aid agenda and put its own house in order: to implement a swift reduction in corruption, illicit financial flows, money-laundering, tax evasion, and hidden ownership of assets” and underlined that developed countries “have special responsibilities in ensuring that there can be no safe haven for illicit capital and the proceeds of corruption, and that multinational companies pay taxes fairly in the countries in which they operate.”

The Open Working Group on Sustainable Development Goals that was tasked to propose a set of goals intended to replace the Millennium Development Goals after 2015 adopted on 19 July 2014 its Outcome Document. It proposed to include in the future development framework of the United Nations a specific goal (16.4) to reduce by 2030 significantly illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organized crime.

Earlier studies on illicit financial flows and human rights

The request for a further study on the topic follows earlier reports prepared by the Office of the United Nations High Commissioner for Human Rights (A/HRC/19/42) and the Independent Expert on the negative impact of non-repatriation of illicit funds on the enjoyment of human rights (see A/HRC/22/42 and A/HRC/25/52) which stressed that illicit financial flows - generated from crime, corruption, embezzlement and tax evasion - represent a major drain on the resources of developing countries, reducing tax revenues and investment flows, hindering development, exacerbating poverty and undermining the enjoyment of human rights. The reports provided estimates of illicit financial flows, i , a review of current initiatives to curb illicit financial flows, and assessed their impact from a human rights perspective.

A report by the Special Rapporteur on extreme poverty and human rights on taxation policies, submitted to the Human Rights Council in June 2014, addressed as well the related topic of tax evasion by multinational business corporations (A/HRC/26/28).

Expert consultation, June 2013

In accordance with Human Rights Council resolution 22/12 an expert consultation was held from 20 and 21 June 2013 in Geneva. Experts from around the world in the fields of human rights, finance and economics participated. The consultation informed the second report of the Independent Expert (A/HRC/25/52) which contains as well a set of recommendations.